Lead Supply Falls, Huge Price Volatility Ahead Despite Strong Demand

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Lead prices’ big ride over the past few weeks reminds me of a day at Cedar Point. If you like amusement parks you have to check out the Point.

3-Month London Metal Exchange Lead rebounds after a sharp drop. Source: MetalMiner analysis of Fastmarkets.com data.

Lead prices surged in Q4, but prices increased too fast. With prices overextended in late November, a correction was of little surprise.

Two-Month Trial: Metal Buying Outlook

Prices fell sharply in December, bringing a great opportunity for buyers to purchase metal near support levels. A tightening market and recent weakness in the dollar pushed the metal higher in January.

Tightening Market

Lead refined production vs. usage. Source: Metalminer analysis of ILZSG data.

The latest International Lead and Zinc Study Group data showed a tighter supply/demand situation. The lead metal supply exceeded demand by only 16,000 metric tons during the first 11 months of 2016.

In addition, global lead mine production fell 7.5% over the first 11 months of 2016 compared to the same period in 2015. As mine output falls at a faster pace than refined output, this should eventually lead to a depletion of concentrate stocks. Meanwhile, strong U.S. and Chinese auto sales in December bode well for lead’s demand.

When To Buy Lead

The lead supply/demand demand picture is not as bullish as zinc’s. However, lead’s production is falling and, in the context of a bull market in the industrial metals complex, we can expect prices to at least remain supported above $2,000.

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On the other hand, given the increase in price volatility, it might take some time before prices overcome their peak in late November. Buyers can expect some range-bound trading ($2,000-$2,400) in Q1.

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